This researchis aimed to examine: (1) the implementation of using bank guarantee as the mechanism to pay unfinished work on the contract that is caused by government procurement (in the end of budgeting year of 2008)(2) the settlement on extra pay if the vendors breach the contract(3) the legal force of the bill on the unfinished work based on its bank guarantee.
The Methodology that is used on this research is normative legal research. It focuses on the implementation of regulation and factual contract. This research uses primary and secondary data. The duration of this research is three months (December 2008- February 2009) in several government and private institutions in Yogyakarta and Jakarta which are implementing the bank guarantee mechanism.
This research shows that bank guarantee is used to guarantee a payment on government procurement contract. The reason is that there is time gap between contract period and the deadline of state budget payment application. Bank guarantee is used as a legalguarantee in issuing the money from the government\u27s account. If the vendors breach the contract, then the government will take over the bank guarantee. Arranging bank guarantee is a mandatory according to the regulation. However, to give the legal certainty, the contract should be stated a specific article about i